Old Time Monopoly: How Dongguan’s Co-Ops Survived the Fall

A photograph taken in the 1980s from behind the famed West Gate, in it we can see the size of the Dongguan Co-op’s headquarters, one of the city’s tallest buildings during the era, displaying in red characters, “Supply and Marketing Co-op Building” for all to see.

Throughout the first three decades of the PRC, a centrally controlled economy was applied to the country. China was underdeveloped and closed to the world. No private and foreign businesses were allowed. The country became the only monopoly and was in charge of the distribution of all the resources. Everybody, for the most part, ate the same amount of food, wore the same clothes and used the same products.

In vast rural areas, supply and marketing cooperatives were set up to supply everything farmers needed, such as fertilizer, pesticide and daily necessities, and bought everything they produced.

Entering the 1980s, as the market opened and capitalism thrived with China’s characteristics, the cooperatives no longer monopolized the rural market and faded from the public thought. The ones that couldn’t adapt to the new market and the new rules of doing business were closed. Others with the vision to invest in new business plans have thrived with significantly growing sales figures.

The Rise

The elders of remote areas are still familiar with the crisp sound of the bell that indicated the arrival of a co-op representative. At the sound, villagers gathered at the front of the village carrying what agricultural products they could to exchange for daily necessities. The co-op worker, a courier with a pole across his neck, would commonly return with his two baskets full of sweet potatoes, grains, vegetables and sometimes a broken wok or plough to recycle.

During the first decade of Dongguan’s co-op, goods and materials were in extreme shortage. Without any other suppliers, residents of remote villages relied on the cooperatives to supply everything they needed. It wasn’t until the 60’s that co-op branches were opened in each village to serve demand.

Starting as a typist in 1976, Yan Liangren worked his way up to head the Dongguan co-op.

In 1950, the first rural cooperative was founded in Dalingshan Town, followed by the establishment of the Supply and Marketing Cooperatives of Dongguan County the next year. (From 1951 to 1985, Dongguan as a county belonged to Huiyang District, a short-term administrative district which included Huizhou, Shenzhen, Dongguan, Shanwei and Heyuan). The initial funds for the co-op were gathered from farmers; 1 yuan per family member was pooled and added to a government subsidy. A few decades later the co-op would look much different.

At the mention of the Huashang Company, Yan Liangen doesn’t try to conceal from his face a gleeful pride. He was the head of the co-op when the company, which was really more a department of the co-op tasked with running its headquarter offices, made a splash. He witnessed and operated the grand opening in 1987 of its 11-story building. It was home to a shopping center on the 1st and 2nd floors and a hotel with a restaurant from the 4th to 10th. Located beside the Xichenglou (West Gate) in Guancheng, the company was launched merely to make use of this building, which was considered a skyscraper in Dongguan at the time. The co-op’s office took up only the third floor.

The opening ceremony, according to Yan, was a sensation across the country due to a national commodity trade fair created for the event. It attracted 670 representatives of 303 cooperatives from 22 provinces and cities. “All rooms at downtown hotels were booked for us,” Yan beamed. “It was pretty rare for an inferior city to organize such a fair.”

“How can we ignite all the firecrackers at the same time?” Yan asked himself.

The 10 lines of 40-meter-long firecrackers dangling from the top of the building all the way to the ground, plus the 10 lions that swung under each, made for an incredible scene. “How can we ignite all the firecrackers at the same time?” Yan asked himself. “In the end we borrowed ten walkie-talkies from the Public Security Bureau, the only place with this kind of equipment.”

After decades of accumulating resources, wealth and reputation, the cooperatives had reached a peak, able to build an 11-story headquarters with its name atop, however, the surface affluence didn’t fix profound, underlying problems. Soon, entering the 1990s, its success abated.

The Decline, the Vision

This shop, opened by the co-op in the 1980s, sold daily necessities. In rural areas before the 1990s, shops like these were the only place to supplies.

As the Reform and Open-Up policy, China’s economic reform, charged into fruition, private, foreign and shareholding businesses began to flourish. Many exclusive businesses and state-owned enterprises were opened to the public. Competition and foreign investment grew, business did better and became more flexible. Consumers never before had so much choice, they didn’t have to buy and sell products through the co-op. The organization faced unprecedented difficulties, but for some, it was an opportunity.

The lack of market vision for some leaders led to the decline or end of cooperatives. When the targets and rules changed, some didn’t see or invest in their potential for business. Instead, they maintained old businesses styles even when they stopped profiting. In the old times, the government would pay for the loss, but times had changed.

In the old times, the government would pay for the loss, but times had changed.

All affiliated companies and basic level cooperatives need to take responsibility for their own losses. “For example, before we would store 50,000 tons of fertilizer, now only a few hundred tons are enough,” explained Yan. “There are many ways to serve people, you can sell clothes. But some people just couldn’t think of it.”

Although most closed their doors, new businesses were set up as co-op branches seized the moment with logistic and storefront infrastructure waiting for a next move. For example, one turned out to be a pioneer in the pawn and auction business. There was no competition for such a business, they had all been wiped out in 1949 by a centralized economy.

In 1992, Yan submitted a detailed proposal to the government about opening Dongguan’s first auction house, and explained how it was practical to open pawn shops at the same time. The proposal beat out another two agencies to win the license.

“Only the market economy will generate this kind of business,” Yan said. “Dongguan was full of smugglers in the 90s, and they liked to gamble. When they lost money, they sold their motorcycles to our pawnshop and invested in some new products to smuggle.” In 1995, the transition of the auction houses and pawnshops exceeded RMB 715 million. The co-op was in lead of the market for almost ten years before individuals could easily get a license to open the same business.

When the economy moved toward a more open market and private business grew, many co-ops like this 1990s hardware store closed their doors for good.

Nowadays, the cooperatives have lost some advantages in dominating the circulation of goods in rural areas, but it’s making the best profit in its history as before it did business in a planned way with many limitations. After over two decades of reform, the co-op has set up five affiliated companies in areas such as recycling resources, local specialties and butchery. The 30 township cooperatives have their own diversified investments in home appliances, gas stations, shopping malls and so on. In 2013, the co-op realized over RMB 51 million of revenue, up 15 percent than last year.